Should we pay higher taxes to cover the cost of Afghan war?

McClatchy NewspapersNovember 25, 2009 

WASHINGTON — Abraham Lincoln levied the country's first income tax to help pay soldiers and buy rifles for the Civil War.

Franklin Roosevelt raised taxes as well, to help pay for World War II.

Lyndon Johnson tacked a temporary 10 percent surtax on top of normal income taxes to help pay for the Vietnam War.

Now, as President Barack Obama prepares to send tens of thousands more U.S. troops to the eight-year-old war in Afghanistan, the pending escalation is raising the question of how the country should pay the growing bill.

Some top Democrats in Congress propose a surtax starting in 2011. Conservatives call it a political ploy from lawmakers who felt no need to raise taxes to pay for things they wanted, such as the economic stimulus package. Economists say that more tax increases could hurt the economy just as it starts to rebound.

Obama hasn't said what he wants to do. He has, however, signaled that he no longer can afford — economically and perhaps politically — to simply add the cost of the war to the soaring federal debt, as his predecessor did.

For the first time in nine meetings over months of deliberations on the Afghanistan strategy, Obama on Monday invited Budget Director Peter Orszag to sit in, a sign that the White House was weighing the budget consequences of a troop surge that could cost a trillion dollars over 10 years.

"There is serious unrest in our caucus . . . can we afford this war?" House Speaker Nancy Pelosi, D-Calif., said in a Tuesday conference call with economists. "We have to look at that war with a green eyeshade on."

The U.S. historically has four ways to pay for a war, according to the Congressional Research Service — raise taxes, cut other spending, borrow, or print more money.

So far, the wars in Afghanistan and Iraq have been financed by borrowing.

Now, a group of top Democrats led by Rep. David Obey, D-Wis., proposes a surtax to help pay for the Afghanistan war.

"The only people who've paid any price for our military involvement in Iraq and Afghanistan are our military families," said Obey, who's the chairman of the House Appropriations Committee. "We believe that if this war is to be fought, it's only fair that everyone share the burden."

It's not just a matter of equity, though. Obey and other liberals fear that the rising budget pressure created by a $1.4 trillion annual budget deficit and a $12 trillion national debt will squeeze their priorities for domestic spending.

"If we don't address the cost of this war," Obey said, "we will continue shoving billions of dollars in taxes off on future generations and will devour money that could be used to rebuild our economy by fixing our broken health care system, expanding educational opportunities and job training possibilities, attacking our long term energy problems and building stronger communities. We cannot allow the war to derail that potential."

Obey's proposal would impose a 1 percent surtax on anyone making less than $150,000 a year, and would impose bigger — and as yet undefined — surtaxes on those making more.

Robert Bixby, the director of the Concord Coalition, a bipartisan group that advocates balanced budgets, called Obey's proposal a good idea that reflects growing awareness of the deficits and debt.

"We've been fighting that war (in Afghanistan) for eight years and haven't paid for any of it except by borrowing," Bixby said.

He noted that earlier wars were financed through combinations of taxes, borrowing and cuts in other spending. "There's always going to be borrowing. But the entire war shouldn't be financed by borrowing."

He also said that Obey's proposal underscores that politics is shifting as runaway debt puts pressure on any new spending, including Democratic proposals to expand health care for the uninsured. Democrats propose a combination of tax increases and cuts in Medicare to help finance that proposal, though not enough to pay for all of it once it's fully implemented.

Conservatives say that Obey's tax proposal can't pass a Congress heading into an election year. They argue instead that Obey and House Democrats are really using it as a political wedge, either as payback to conservatives for demanding that an expansion of health care be paid for, or as a way of opposing an escalation of the war.

"It's dead on arrival. Because of the explosion of domestic spending this year, it's hard for members (of Congress) to say with a straight face that they need to levy a tax to pay for this," said Mackenzie Eaglen, a research fellow at the Heritage Foundation, a conservative policy organization.

"It seems they're using it to pressure the president to not escalate in Afghanistan. It also puts conservatives in a bind by trying to force a debate between war and taxes, both of which tend to be unpopular."

She said that Obama already took a major step toward responsibly paying for the war by putting it in the regular budget process. Former President George W. Bush had used a series of emergency appropriations to finance the war, keeping it apart from the budget.

With the government's regular budget spending $1.4 trillion more than it collects in taxes, however, that also means the war, like other programs, is financed at least in party by borrowing.

If that puts off paying the bill until later, paying it now with higher taxes poses its own dangers.

Obey's tax would combine with higher taxes already coming with the expiration of Bush's tax cuts at the end of 2010 and new taxes proposed in the health care legislation moving through Congress. A triple hit on high earners could squeeze them and drive high-risk, high-reward entrepreneurs offshore.

Brian Bethune, a U.S. economist for the firm IHS Global Insight, said his top concern with the war surtax proposal is the impact it would have on innovation through research and development that creates new wealth over the long term.

"If you put big tax burdens on that over the long term you could impair your rate of growth," Bethune said. "The question is how many surtaxes can you layer on top of one another. . . . You have to wonder, how many times you can go to that well before things start to happen?"

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For more McClatchy politics coverage visit Planet Washington

McClatchy Newspapers 2009

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